The creation of this legal background enabled the privatisation tender of MATAV. The tender encompassed awarding telephone concession licences and purchase of MATAV shares. Pursuant to the contracts signed on 22 December 1993, the MagyarCom consortium, consisting of Deutsche Telekom and Ameritech International, obtained the ownership of the telephone concession licence transferred to MATAV and of 30.2 per cent of the share capital of MATAV. The concession licence grants exclusive rights for international and national long-distance telephone services and, in certain regions of Hungary, for local telephone services for a period of eight years, and non-exclusive rights for an additional period of 17 years, which can be renewed for another 12.5 years.

This was the first privatisation of a telecommunications company in Central and Eastern Europe. According to the Concession Contract, in the following years an average annual telephone main line growth of at least 15.5 per cent has to be ensured; the telephone service has to be fully automated; and from 1997, 90 per cent of all telephone service requests have to be fulfilled within six months and 98 per cent within one year.

The second round of MATAV's privatisation was enabled by the passage of the Privatisation Act in May 1995. At the end of the privatisation process MagyarCom became the majority owner of MATAV. The contract signed in Budapest on 20 December 1995 raised the joint equity stake of MagyarCom to 67 per cent against the purchase price of US$852 million. The transfer of concession areas to local telephone operators or LTOs was also completed in 1995. The national and regional concession tender left 84 per cent of Hungary's telephone main lines with MATAV. With the services transferred to LTOs, the final components of the new telecommunications structure finally fell into place and Hungary's multi-participant telecommunications market was created. This created a competitive environment for MATAV. We were happy to face the challenge of competition because it gives us enormous impetus. In addition to competing with other service providers, MATAV also provides a service to its competitors, being the owner of the largest portion of the telecommunications infrastructure.

For us, the completion of the privatisation was an outstanding success. MATAV as a leading telecommunication service provider needs international co-operation for its successful development. Now we have the chance to join world leader companies in the telecoms sector. The powerful new amalgam of American, German and Hungarian skills and experience is already fuelling our progress in a number of areas, such as the creation of an effective marketing function, or the building of an integrated budgeting system.

Our successful privatisation has strengthened MATAV's position as an industry leader in Central and Eastern Europe and is contributing to Hungary's becoming a regional hub. MATAV's privatisation - the value of both rounds combined - has become the largest privatisation transaction in Central and Eastern Europe and the largest foreign investment in Hungary.

MATAV's shareholders

An ambitious strategy

The formation of an information society is on the agenda in Hungary as well. New needs and new services that meet them are characterised all over the world by the convergence and interaction of telecommunications and information technology as we approach the turn of the millennium. MATAV will promote the implementation of Hungary's national IT strategy by preparing for and introducing the business and other communication services collectively known as the 'information superhighway', thus ensuring that Hungary can catch up with the European Union and other regions of the world.

The MATAV's Mission offers a long-term answer to the question: what is the target and raison d'être; of the company.

Our mission is to become the best service provider in Central and Eastern Europe to serve the needs of our customers, investors and staff.

MATAV accepts its share of responsibility to further Hungary's social and economic progress. Telecommunications, once a backward sector of Hungary's economy, has become one of the country's most advanced industries. With its huge investments, MATAV remains a prime mover of the country's economy. We directly employed more than 17,000 people in 1995, employed 5,000 more at MATAV subsidiaries and additionally supported at least 10,000 people in vendor industries. One of our top priority tasks is to fulfil our concessional obligations.

Skilled employees represent our company's most valuable asset. Our corporate future is embodied in the intellectual resources of our employees. Our research and development results carry our company into the future and are utilised not only by MATAV but the full range of Hungarian science and technology.

MATAV has a majority or considerable share in a number of subsidiaries and companies, known as the MATAV Group. The company plays an active role in international organisations and is a member of several network projects. MATAV's strategic aim is not only to remain a leading national provider of telecommunications services in Hungary but also to become an important transit partner between East and West.

Accelerated development and diversification

We have brought to market a number of advanced, world class communication services and developed and introduced a number of new business communication and value-added services. We are breaking out of the traditional telecoms mould and are becoming a complex communication service provider by diversifying our services.

The introduction of an ISDN reference network and subsequent commercial ISDN services last year was a huge success, both as a business and as a new technology. We commissioned a new hub station for VSAT satellite communication system. And we set up a technical service base for the accelerated development of a Flex-Com managed leased line network. Another milestone was the introduction of national Blue (toll-free) and Green (freephone) numbers. We added Internet and EDI, or electronic commerce, to our business services in 1996.

We have further expanded Hungary's international transit network as well. MATAV opened a modern, digital link with Romania and Ukraine in 1995. We have optical transmission systems linking us with all neighbouring countries and commissioned our second domestic and international gateway exchange in 1995.

MATAV's financial stability and solid reputation reflect its good performance. Last year we spent HUF63.7 billion on capital expenditure projects. This is another record. Our 1994-95 investment will dramatically increase our performance and profits in the future. The MATAV Group invested more than HUF240 billion in telecommunications development projects in 1994-96 in order to satisfy the communications needs of customers. A total of almost HUF80 billion was invested in development projects in 1996.

Privatisation brought accelerated development, and the same can be expected for the future. We set a historical record in 1995, when 330,000 new lines were connected. MATAV has recently congratulated the subscriber of its two millionth telephone line. This also indicates good progress in meeting concession obligations so MATAV will be able to satisfy practically all telephone line demands by the end of 1997. Telephone penetration has further improved: the number of phone lines per 100 inhabitants has increased to 25.6 (to 40.1 in Budapest) in MATAV's service area. Network digitalisation has reached 60 per cent, an outstanding rate even by international measures. Automation of the telephone network has been virtually achieved: 99.9 per cent of MATAV's subscribers have been connected to national and international long-distance lines.

The success of privatisation has given impetus to our activities. We have met our obligations toward our customers, our owners and the Hungarian society. We are proud of our results and achievements.